The Exit Tax Clock Is Running

Most people who intend to leave Germany or the United Kingdom believe they have time. They are thinking about it. They have spoken to an adviser, or plan to. The destination is under consideration. The timeline is loose — perhaps next year, perhaps the year after.

The tax code does not share this relaxed view of the timeline.

Exit taxation is not a penalty for leaving. It is a mechanism for collecting what the state considers its share of wealth accumulated under its jurisdiction before that jurisdiction loses its claim. The calculation is triggered by the loss of the departure jurisdiction’s tax claim — and by the time most people realise the window has closed, it already has.

The German Mechanics

Section 6 of the Außensteuergesetz — §6 AStG — imposes a deemed disposal on shareholdings in corporations upon the loss of German unlimited tax liability (unbeschränkte Steuerpflicht). The rule applies to shareholdings of one per cent or more in any corporation, held at any point during the five years preceding that loss. The deemed disposal is calculated at fair market value on the relevant date. The gain — the difference between the original acquisition cost and that fair market value — may be taxable in Germany, whether or not the shares have been sold.

The critical point is this: the tax is calculated on unrealised gains. The shares do not need to be sold. The gain does not need to be crystallised. The loss of unlimited tax liability triggers the deemed disposal and the resulting exposure.

For a German HNI with a meaningful shareholding in a private company — a Mittelstand business, a technology venture, a family holding — the numbers can be significant. A shareholding acquired at a nominal value that has grown to several million euros in fair market value can generate a tax liability that runs to seven figures. Payment obligations arise regardless of liquidity.

Deferral may be available under certain conditions — typically via instalments, sometimes subject to security requirements, and dependent on factors including the nature of the assets, their retention, and the destination jurisdiction. The specific conditions and availability of deferral require careful analysis in each case; the position is not uniform across destinations or structures.

The planning implication is clear: the lower the fair market value of the shareholding at the point the German tax claim is lost, the lower the potential exit tax exposure. This creates a window — between the decision to leave and the loss of unlimited tax liability — during which pre-departure structuring may be meaningful. Restructuring a shareholding, adjusting the corporate structure, or transferring assets between entities can affect the calculation, though such steps can themselves trigger tax consequences and artificial value suppression is subject to challenge. None of the pre-departure options remain available after the fact.

The window is not defined by calendar. It is defined by the gap between the decision to leave and the act of leaving. For most people, that gap is shorter than they assume.

The British Mechanics

The replacement of the UK non-domicile regime with a residence-based system in April 2025 changed the landscape for long-term UK residents with foreign income and assets. The old system — under which non-domiciled individuals could elect to be taxed on a remittance basis, sheltering foreign income and gains from UK tax unless remitted to the UK — no longer applies in its prior form. In its place is a four-year foreign income and gains exemption for new arrivals, alongside transitional provisions for those already in the system whose treatment depends on their specific timing and status.

For the long-term non-dom who has been in the UK for more than four years and has not yet restructured, the position is materially different from what it was. Foreign income and gains may now fall within scope depending on residency status and the application of transitional rules. The inheritance tax treatment of overseas assets has changed. The assumption that the prior regime would persist — which underpinned many structuring decisions made over the preceding decade — has been proved wrong.

Departure from the UK does not end the exposure immediately. The UK applies a statutory residence test that is rule-based and precise. Incorrect day counting or unresolved connection ties can lead to unintended UK residence for a given tax year, with the full consequences that follow for income and gains during that period.

Inheritance tax exposure operates on a separate timeline. An individual who has been UK resident for ten of the preceding twenty tax years may be treated as a long-term resident for IHT purposes. Departure does not immediately end that exposure — the tail typically extends for a period after departure, depending on the length of prior residence, and UK-sited assets remain within the IHT net regardless of residence status during that period.

For the UK HNI considering departure, the sequencing of exit matters as much as the destination. Leaving at the wrong point in the tax year, or without addressing the IHT tail, can produce a worse outcome than leaving correctly from a better-timed position.

The Common Error

The mistake most people make is treating the exit decision and the exit structuring as sequential — first decide to leave, then figure out the structure. The tax code treats them as simultaneous. The structuring options available before departure are categorically different from those available after it. Pre-departure restructuring of shareholdings, trusts, and asset-holding arrangements can meaningfully affect the exit tax calculation. Post-departure, those options are gone.

The second mistake is anchoring on the destination. The conversation about where to go — UAE versus Singapore versus Malaysia versus Portugal — is secondary to the conversation about how to leave and when. A perfectly chosen destination does not help if the departure itself was handled incorrectly and triggered an avoidable liability.

The third mistake is deferral. The exit tax calculation is based on fair market value at the point the home jurisdiction’s tax claim is lost. For individuals holding stakes in growing businesses, the value that will be taxed on departure tomorrow is higher than the value that would have been taxed on departure last year. Every year of growth is a year of additional tax base. The cost of waiting is not abstract. It compounds.

What Pre-Departure Structuring Looks Like

The specifics depend entirely on the individual’s asset composition, jurisdiction of departure, and intended destination. There is no universal template. But the elements that commonly appear in a pre-departure engagement include the following.

A review of all shareholdings against the relevant exit tax rules — §6 AStG for German residents, equivalent provisions for UK residents — to establish the current exposure and identify restructuring opportunities. For German HNIs, this typically involves an assessment of whether any reorganisation, contribution, or restructuring of the corporate holding can be executed in a way that reduces the taxable base or qualifies for deferral treatment, with careful attention to whether the restructuring itself triggers an interim tax event.

An analysis of the destination jurisdiction’s treatment of incoming assets and structures. Some destinations treat incoming wealth more favourably if it arrives in a particular form. Whether a structure such as a Cook Islands trust should be established before or after departure — and whether doing so is advantageous — depends on the interaction between the trust’s asset composition, the timing of any transfer, and the departure jurisdiction’s rules on deemed disposals. Transfers into structures can themselves trigger tax consequences; the sequencing requires precise advice.

A day-count plan for UK residents — mapping the specific dates, ties, and conditions required to achieve the intended residence position from a given tax year, and identifying where the risk of miscounting lies.

An IHT tail analysis for UK long-term residents — establishing when the exposure ends and what assets remain within scope during the tail period.

The goal is not to avoid tax. It is to ensure that the tax paid on departure is the minimum that is legally due — no more, and calculated correctly — and that the structure established before departure is the right one for the life that follows.

The Starting Point

Neither a German nor a British HNI considering departure can assess their position without first establishing what they actually hold, where they hold it, and what the current exposure looks like across all five structural dimensions — jurisdictional, custody, compartmentalisation, liquidity, and concentration.

The Portfolio Resilience Diagnostic at autarkadvisory.com does exactly that. It takes under ten minutes. It surfaces the gaps. The exit tax conversation starts from the output.

This article is for informational purposes only and does not constitute legal, tax, or financial advice. Exit tax rules are complex and vary significantly by jurisdiction, individual circumstance, and asset composition. Independent legal and tax advice should be obtained before taking any action in connection with a change of tax residency.